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Facebook’s earnings smashed forecasts, so why did its stock suddenly tumble?

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The numbers all looked good for Facebook when it reported its latest set of financial figures on Wednesday. But its stock value went south.

Revenue climbed, profits soared, user numbers jumped. But the value of its shares fell when the company warned of slower ad revenue growth next year because it’s nearing the limit of how many ads it can show without alienating users, among other factors.

Facebook’s latest quarter topped Wall Street expectations, pulling in $7.01 billion in revenue – up from $4.5 billion a year earlier – with 84 percent of that figure generated by mobile ads. Profits hit $2.4 billion, a significant increase on the $896 million it raked in across the same three-month period in 2015.

The company’s continued focus on integrating video features into its main mobile app, as well as others in its stable such as Instagram, has contributed markedly to the continued rise in Facebook’s revenue and profits, with an increase in user- and partner-created content leading to more eyeballs on ads.

CEO Mark Zuckerberg said in an earnings call on Wednesday that video is “only going to become more important,” adding that the social networking giant is planning to prioritize “putting video first across our family of apps and taking steps to make it even easier for people to express themselves in richer ways.”

Active users

Facebook’s army of daily active users reached 1.18 billion, marking an increase of 17 percent on the same period last year, while its monthly active user base now stands at a colossal 1.79 billion.

Significantly, and in line with the company’s long-term strategy to nudge users from desktop to handsets, users hitting the site on mobile devices on a daily basis hit 1.09 billion, up 22 percent year-on-year.

Facebook’s Q3 performance was clearly strong, but David Wehner, the company’s chief financial officer, dampened investor expectations for 2017 with a message that sent its stock value tumbling by around 6 percent. In Wednesday’s earnings call, Wehner warned that ad load would play “a less significant factor driving revenue growth after mid-2017.” In other words, Facebook feels it’s close to the limit of how many ads it can show users without stirring up a negative reaction.

Another factor set to weigh on investors’ minds is the company’s plan to increase spending over the next 12 months, with Wehner describing 2017 as “an aggressive investment year” that’ll see an increase employee numbers and the construction of more data centers.

In a bid to calm investor fears, Wehner added that Facebook will exploit other aspects of its operation in a bid to boost revenue, including doing what it can to increase the amount of time its users spend on the platform.

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